Prediction markets, where users buy and sell contracts that pay a fixed amount if a specific event occurs, have become an important legal and economic topic. In these markets, the price of contracts reflects the collective estimate of the likelihood of a specific event occurring. This phenomenon, which is a combination of gambling and financial trading, is now at the center of attention for lawmakers and courts in the United States and Europe.
History and Current Status
The history of betting on public events dates back to the sixteenth century in Rome, when betting on the election of the pope became so common that Pope Gregory XIV banned it in 1591. However, the scale of these markets has now reached a point where companies like Kalshi in the United States have achieved an annual trading volume close to $50 billion by 2026. This company claims that they are not gamblers but financial exchanges, and therefore state gambling laws do not apply to them.
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Contradiction in Legal Interpretation
However, U.S. courts have divided into two camps regarding this claim. In April 2023, the Third Circuit, an appellate court, approved betting contracts on sports outcomes as a federal issue. But on August 28, the Ninth Circuit, which includes nine other states, rejected this view, stating that the outcomes of sporting events are not measurable facts and therefore should fall under gambling laws. This contradiction is likely to reach the U.S. Supreme Court to determine whether this multi-billion dollar industry is under federal oversight or if state laws should apply.
From a European perspective, the Ninth Circuit reached a position similar to that of European Union laws. Here too, the outcome of a sporting event is a fact, not a probability. Some EU member countries, including Belgium, France, and Italy, have blocked access to these platforms to protect investors.
Ultimately, the question is whether these contracts are considered investments or not. The U.S. federal court has recently answered this question, and now the U.S. Supreme Court and European lawmakers must address this issue. This matter will not only impact gambling laws but also affect access and protection for investors.
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